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GameStop Rises Despite Video Games' Fall

GameStop made gains Friday morning on news that its targeted business is booming. The specialty retailer said, "In November of 2009 we bucked the trend and have continued to gain market share. In fact, our US stores saw a 15% rise in new software sales." The retailer's stock took a hit, falling eight percent in one day earlier this month when Wal-Mart unveiled plans to slash prices on popular video games, declaring "Game On" in a pricing war. But now it appears that a focus on a core gaming audience is exactly what it takes to thrive in this tougher consumer economy.

GameStop
Paul Taggart | Bloomberg | Getty Images

Game Stop's positive news is in sharp contrast to numbers NPD Group released last night, revealing a rough November for the industry. The overall industry posted a 7.6 percent decline, which was actually better than many Wall Street analysts expected. The surprise is that game software couldn't manage to eke out a game — Wall Street analysts expected an average of a 2 percent increase in game sales — this despite the remarkable numbers from Activision/Blizzard's "Call of Duty: Modern Warfare 2."

The contrast is striking, but perhaps it makes sense. GameStop wins a larger share of core gamers; it's casual gamers who will pick up a game or two at Wal-Mart or Best Buy. And they're the ones who may be prioritizing other items, or gasp, necessities, on their shopping lists. The success of "Modern Warfare 2," which sold 6 million copies in less than a month on store shelves, also fits with the fact that hard-core gamers will turn out in droves for an "event" release. Not only were millions of games pre-ordered ahead of the game's November 9th launch, but also thousands of people came out for stores' midnight openings. Game Stop opened more stores for this midnight launch than ever before.

Console sales are suffering — down by 13.4% in November — largely because of where we are in the product cycle and the fact that they're a much heftier investment than a $50 game. But here's the other trend we've seen this fall: Deep discounting. It worked for Sony -- by slashing a hundred dollars off the ticket price of a PlayStation 3, Sony managed to grow sales of the console 88 percent this November over last year. But Pacific Crest analyst points out that pricing has less of an impact than expected because unit sales for consoles (other than the PS3) suffered. Now Wilson expects to see a healthy December but declines in January and February.

I expect game makers like Electronic Arts and Activision Blizzard to see from these numbers that they have to keep delivering huge hits for their most devoted gamers. While Wii sports and fitness games targeting women are certainly gaining -- and Nintendo continues to be huge -- to drive the top line growth, shoot-em-up games for those 20year-old men who will turn out for a midnight opening, are key.

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